Getting a Home Loan After Bankruptcy
A bankruptcy is supposed to be a fresh start for a consumer. The chance to start your financial life anew, with good habits and a clean slate. But that can be hard to do when your credit is affected by a bankruptcy. One of the biggest ways that credit is affected is when you want to get a mortgage. Can you get a mortgage after filing for bankruptcy?
Bankruptcy and Credit Issues
First, let’s just be honest—bankruptcy is not great for your credit. However, it is better than carrying huge debt on 6 credit cards, 3 medical debts, and a car payment that’s 2 months behind. In other words, your credit will recover quicker after bankruptcy than it will if you are in the endless cycle of debt that you can never climb out of.
Bankruptcy is not a death knell for your credit, and after your bankruptcy, you are on the right track to rebuilding your credit. But what about a mortgage? Can you qualify for a mortgage after you’ve filed for bankruptcy?
The first thing you can do in order to qualify for a mortgage is to slowly rebuild your credit. You will get some credit offers after bankruptcy. The terms of the credit may not be favorable—but if you charge a small amount every month, and pay it off timely every month, you can be on the way to rebuilding your credit.
The same is true for car loans–every payment that you make on time rebuilds your credit.
Sometimes, you can get secured credit cards—a card that is secured by your bank account like a traditional debit card would be—but your good payment history gets reported to your credit like a traditional credit card would.
Aside from these techniques, there are programs that allow people who have filed for bankruptcy, to obtain mortgages.
FHA loans through the Fair Housing Administration allow you to qualify within two years of filing for a bankruptcy.
For military veterans, the Department of Veteran Affairs allows them to qualify for a mortgage within two years of filing for bankruptcy. You do need to have served in the services for 181 days if you served during a time of peace, or 90 days if you served during wartime.
Even the Department of Agriculture has loans that it will give to people looking to buy property in rural areas, and those loans are available three years after your Chapter 7 discharge.
Remember that even if you don’t qualify for any of the above, many traditional banks only have four year waiting periods—but if your credit is rebuilt sooner than that, which is possible, many lenders will waive that time limitation. Many lenders also heavily weigh current income, so if you are employed, you are already in a good place to qualify for a mortgage, even if there’s a bankruptcy in your past.